EU finmins expect growth to slow down a bit next year
Europe’s economy is heading for a “slight” slowdown in ’07 as interest rates rise, Germany boosts sales taxes and the US growth engine loses steam, European finance ministers said.
By Agencies |
LUXEMBOURG: Europe’s economy is heading for a “slight” slowdown in ’07 as interest rates rise, Germany boosts sales taxes and the US growth engine loses steam, European finance ministers said. “We expect growth which next year will be a little bit slower,” Spanish economy minister Pedro Solbes told reporters before a meeting of finance chiefs in Luxembourg on Tuesday. Luxembourg Prime and finance minister Jean-Claude Juncker said: “In ’07, there could be a slight slowdown.”
The 12-nation economy of the Euro area is likely to expand 2.5% this year, the European Commission predicts. That would be the fastest pace since the 3.9% charted at the height of the technology bubble in ’00. The ECB raised its main interest rate last week for the fifth time in 10 months, to 3.25%, and signalled it will boost borrowing costs again in December to prevent the pickup in growth from touching off inflation.
German Chancellor Angela Merkel will increase a value-added tax to 19% from 16% in January, leading to predictions that consumer spending will stumble, hobbling growth in Germany and Europe. European finance ministers said those concerns may be overstated, expressing confidence that the German economy is already robust enough to weather the tax bite.
“The European recovery is quite strong,” Dutch finance minister Gerrit Zalm said. “I don’t worry much about it.” Budget deficits are falling across Europe as a side effect of the pick-up in growth. Deficits in the three biggest Euro economies — Germany, France and Italy — will simultaneously drop under the limit of 3% of gross domestic product in ’07 for the first time in seven years, European monetary commissioner Joaquin Almunia said.
“The figures in the Euro zone are quite positive,” Solbes said. “I expect the situation will continue in this direction.” European manufacturing expanded at a faster-than-expected pace in September, while services slowed more than expected, providing a mixed picture of the economy’s strength at the start of the fourth quarter. One cloud is “the volatility of oil,” Mr Juncker said. For now, the economy is benefiting from a drop in oil prices, which squeezed Euro-area inflation down to 1.8% in September, under the ECB’s ceiling of 2% for the first time in 20 months.
Crude oil for November delivery fetched $60.11 a barrel in after-hours trading on the New York Mercantile Exchange on Tuesday, down from an all-time high of $78.40 on July 14. Still, ECB president Jean-Claude Trichet has said the bank remains on guard over a possible jump in inflation next year.
The 12-nation economy of the Euro area is likely to expand 2.5% this year, the European Commission predicts. That would be the fastest pace since the 3.9% charted at the height of the technology bubble in ’00. The ECB raised its main interest rate last week for the fifth time in 10 months, to 3.25%, and signalled it will boost borrowing costs again in December to prevent the pickup in growth from touching off inflation.
German Chancellor Angela Merkel will increase a value-added tax to 19% from 16% in January, leading to predictions that consumer spending will stumble, hobbling growth in Germany and Europe. European finance ministers said those concerns may be overstated, expressing confidence that the German economy is already robust enough to weather the tax bite.
“The European recovery is quite strong,” Dutch finance minister Gerrit Zalm said. “I don’t worry much about it.” Budget deficits are falling across Europe as a side effect of the pick-up in growth. Deficits in the three biggest Euro economies — Germany, France and Italy — will simultaneously drop under the limit of 3% of gross domestic product in ’07 for the first time in seven years, European monetary commissioner Joaquin Almunia said.
“The figures in the Euro zone are quite positive,” Solbes said. “I expect the situation will continue in this direction.” European manufacturing expanded at a faster-than-expected pace in September, while services slowed more than expected, providing a mixed picture of the economy’s strength at the start of the fourth quarter. One cloud is “the volatility of oil,” Mr Juncker said. For now, the economy is benefiting from a drop in oil prices, which squeezed Euro-area inflation down to 1.8% in September, under the ECB’s ceiling of 2% for the first time in 20 months.
Crude oil for November delivery fetched $60.11 a barrel in after-hours trading on the New York Mercantile Exchange on Tuesday, down from an all-time high of $78.40 on July 14. Still, ECB president Jean-Claude Trichet has said the bank remains on guard over a possible jump in inflation next year.
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